GAIL in pact with ONGC for buying natural gas

State-run gas utility GAIL India Ltd today said it has signed an agreement to buy all natural gas produced by Oil and Natural Gas Corp (ONGC) from its existing and new fields.

GAIL will hold the exclusive marketing right of all gas produced by ONGC for a three-year period, which can be extended on mutual consent, the company said in a statement.

The gas utility would also market some of the chemicals to be produced from the Dahej petrochemical complex being set up by ONGC Petro-additions Ltd, a subsidiary of ONGC.

Also, GAIL, which owns 9,500 km of gas transmission pipeline network in the country, signed a Shareholders Agreement (SHA) for taking about 17% stake in ONGC Petro-additions Ltd (OPaL) which is building a petrochemical plant at Dahej in Gujarat.

GAIL and ONGC "signed a gas cooperation agreement for sale and purchase of gas from existing and new finds of ONGC initially for a period of three years with a provision of extending it further," the statement said.

Under the agreement, the two companies have agreed to enhance the availability and effective utilisation of natural gas from new and upcoming fields of ONGC for supply of gas to customers through GAIL's infrastructure.

The two firms also signed a complex swap agreement wherein GAIL would supply imported LNG to ONGC's C2+ extraction plant at Dahej. In return, ONGC will supply an equivalent quantity of domestic gas.

"This will pave the way for commissioning of C2+ extraction plant by ONGC. Pursuant to extraction, the C2+ components shall be supplied to OPaL for manufacturing petrochemicals at Dahej SEZ," the statement said.

GAIL has around 19% equity in OPaL and has around 38% marketing rights of petrochemicals produced from OPaL.

In addition, a polymer marketing pact was signed among GAIL, ONGC and OPaL under which GAIL has the right to market part of polymers produced by OPaL both in domestic as well as export markets. This arrangement is expected to enhance GAIL's marketing share for polymers in the country.

GAIL would also have the right to off-take butadiene produced in OPaL plant to produce value added products through a Special Purpose Vehicle (SPV).

Under the agreement signed today, GAIL will get the first right on all gas that ONGC will produce from any of its fields in future. But in case GAIL is unable to get a 'good' price within 30 days, ONGC will take back the marketing right.

GAIL will be a co-promoter of the 1.1 million tons ethylene cracker petrochemical complex that OPaL is setting up at Dahej SEZ at a capital cost of over Rs 21,000 crore.